Owning your own home is an important goal for many people. There are many reasons to buy a home including a predictable monthly payment, the ability to make modifications when you want to, more privacy, more room, and not having to deal with a landlord. No matter whether your reasons are financial or just focused on quality of life, buying a home is a worthwhile goal. However, it is not a simple process and the mortgage loan process involved a lot of paperwork, records, and personal information. For many, the mortgage loan process may be one of the most detailed and complex financial transactions they make. With so many documents required, you may be wondering why so much information is needed.
Here are some of the documents needed for the mortgage loan process and why it is important.
Common Mortgage Documents
- Tax Returns: your tax returns show a broad overview of your overall financial health including earnings, consistency of earnings, and various other financial factors such as profession, write-offs, business activity, and more.
- Pay Stubs, W-2s, and Proof of Income: a mortgage is a long-term monthly payment and your lender wants proof that you have a consistent income to pay your mortgage predictably and reliably. Your pay stubs and other earnings show what your finances look like currently and how much income you bring home.
- Bank Statements: your bank records show existing assets, savings, and account balances. Such information paints a picture of your financial health. If you have liquidity and assets, it means you can pay your bills in case of an emergency, and this includes your mortgage.
- Credit History: your credit history is an organized overview of your accounts and your actions regarding them. If your lender discovers relevant issues such as a foreclosure, an explanation may be required. Most lenders are fair as it relates to one-time events or errors. However, consistent issues such as repeated late payments may raise questions.
- Renting History: renting is similar to having a mortgage in the sense it is a monthly payment for a dwelling. A strong rental history with on-time payments indicates to a lender that you can be counted on to pay your bills on time and consistently.
- Gift Letters: when you purchase a home, often your closest friends and family want to help. Gift letters are used to verify monetary gifts and where they came from. This shows that you have capital on hand that is not a loan and therefore not expected to be paid back.
- Photo ID: a photo ID is asked for simply to verify your identity. Sadly, identity theft has become a major crime, and more than ever, it is necessary to validate a person’s identity and background before entering into financial arrangements.
Getting a mortgage is certainly a time-consuming process and gathering all the requested documents can take time. But this isn’t done just for busy work. Every document your lender asks for is used for specific purposes and to provide needed information. By collecting needed paperwork in advance, you can save time during the loan process.